Despite volatile markets, weak sentiments and a faltering growth story, retail investors are not fleeing the market. On the contrary, they are adopting a new strategy to counter the current situation: shifting investment from high risk, high-return equity schemes of mutual funds to low risk, low-return debt schemes of MFs.
The number of folios in equity schemes of mutual funds declined to 37 million at the end of March 2012 from 38 million at the end of March 2011, whereas the number of folios in debt schemes grew to 4.5 million at the end of March 2012 from 3.9 million at the end of March 2011."It shows that there are investors who do not rush to open fixed deposit just because there is volatility in the market," said Arindam Ghosh, vice-president and head, retail sales, JP Morgan Asset Management. "They rather go for less-risky instrument available in the market."
In last fiscal, when the Sensex went up to 19,100 (in April 2011) and fell to 15,100 (in December 2011), the number of folios (equity and debt schemes) did not see a sharp decline. Total number of folios at the end of March 2012 stood at 42 milliom against 43 million at the end of March 2011.
A mutual fund scheme that invests major portion of its corpus into equity and equity-related instruments is called an equity mutual fund. In debt-oriented schemes the money is invested in bonds and other debt instruments. Since money is invested in debt instruments such as government bonds, corporate bonds, debentures, the returns are comparatively low and carry very low risk.
“In the last one year, when the market was volatile, we did not see any significant surge in redemption from retail investors,” said Lalit Nambiar, senior vice-president and fund manager, head, research, UTI Mutual Fund.